How Credit Cards Can Make Your Household Budget Work Better

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My wife and I budget a little differently than most families. We use a credit card for most of our purchases instead of cash or checks, and use that to monitor our family's monthly spending.

According to a recent Gallup poll, fewer than one-third of Americans follow a detailed written budget every month. Out of those who do, not all of them strictly follow their budgets. This may be a stark indication as to why American families are in financial trouble, with shrinking savings and increasing debt.

So why do we have such a hard time sticking to a budget? Perhaps we feel our spending is often too hard to track. If that's the case, we might need to simplify things.

Budgeting the Traditional Way With Cash and Envelopes

Many financial experts, like Dave Ramsey, recommend that families use a written monthly budget and account for every dollar they spend. Ramsey even goes so far as to suggest that families use a cash envelope system, in which there's an envelope for every category in your budget, such as housing, entertainment, gas or groceries. For example, if you and your family budget $100 each month for eating out, you would place $100 cash in an envelope. You spend the cash until it's gone. When envelope is empty, your family has to stop eating out.

There's a reason people say cash burns a hole in your pocket.

My wife and I found that the envelope system worked -- as long as I remembered to bring her the receipts after making a purchase. But I can't even remember to use a coupon I have in my pocket at the cash register most days, let alone track receipts. So the envelope method of budgeting just didn't work for us. That's why we switched to budgeting with America's favorite financial invention -- the credit card.

The Many Advantages of Budgeting With Credit Cards

You might not realize all the perks that come with credit card budgeting. Using a credit card for all our purchases gives us a real-time accounting of our spending. We can see exactly what we're spending and where it's going. And many credit cards will categorize your purchases on your monthly statement.

Cash, on the other hand, is a nightmare to track. It's far too easy to lose track of your cash. There's a reason people say cash burns a hole in your pocket. It's so very easy to fritter away. There's little documentation to accompany our carefree cash spending. When you use cash, you have to keep receipts and reconcile them with your written budget. But by using a credit card, you have a paper trail of your spending all in one place, either online or in your monthly statement.

Another advantage of using a credit card for budgeting is that it gives you an opportunity to accumulate reward points for your everyday purchases that you wouldn't otherwise earn. My wife and I pay our rent, utilities, cellphone, cable and other monthly bills with our rewards credit card. We then earn an enormous amount of reward points through these purchases every month -- all while budgeting.

Consider Budgeting With a Charge Card

If you're nervous about budgeting with a credit card, consider using a charge card instead. Many people don't understand the subtle difference between the two. A credit card allows you to roll purchases over from month to month and only make a minimum payment. A charge card, on the other hand, requires you to pay off your total balance every month. Using a charge card allows you to build credit, earn reward points, and budget while not going further into debt.

As with any budgeting system, it takes effort, discipline and consistency to make it work for you and your family. Budgeting with a credit card isn't for everyone. I understand that. My wife watches our credit card statement like a hawk every month to ensure that we're only spending the amount we've allocated.

Another hang-up we sometimes run into is when a business doesn't accept credit cards. Believe it or not, there are still a few businesses out there that deal only in cash. For example, my wife loves to shop at our local farmers market. This is always an interesting expense that we struggle to reconcile in our budget, but that's normal. There will be hiccups.

We budget with our American Express card every month. Some merchants still don't accept it, which makes budgeting a challenge. It's not always smooth sailing, but we do our best to make budgeting with a credit card work for our family.

No matter which system you're using, budgeting is hard work. But using a credit card for budgeting the vast majority of your purchases every month can be a great way to keep your family's finances on track.

So how do you budget? Have you ever thought about using a credit card for your family's monthly expenses? Or are you like so many Americans who are still struggling to write and follow a written budget every month?

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Kevin Christian

I used to work as a teller at a bank, and I can't tell you how many people use to come in and smugly talk about how they used cash for everything and had never had a credit card. Of course I never said this, but I was always sitting there thinking congratulations on being a f***ing moron. The only good reason to pay with cash is if you can't control yourself with credit cards and will end up spending more if you use them. Otherwise, you're leaving money on the table. I have a card for groceries that gets me 3% back, one for that get's me 3% on anything there, one for gas that gets me 2% and an other purchases card that gets me 1.5%. I also have one with rotating categories that get 5%. All told, I probably rack up a grand a year in cash back. And that's just the most obvious benefit. As your article points out there is a huge advantage to having an electronic record of every transaction you make. Honestly, I can't believe people still use cash.

April 24 2014 at 6:31 PM Report abuse rate up rate down Reply

I am retired and have lived that this for years. Of course I need receipts as i reconcile my credit card statement every month when I also pay it in full. We have a few cards and use which ever one is giving us more rewards that month. IE 5% for gas. I believe in using other peoples money (banks). I never pay to have a card. Dave Ramsey was mentioned. IMO he talks to people like they are kids still believing in Santa Claus. Yes I'm sure there are people who need to be talked to like kids but please don't knock successful people who only use credit cards.

January 11 2014 at 9:29 PM Report abuse rate up rate down Reply

I have been paying for years every thing including groceries on my credit card and pay it off each month. I had one that earned mileage and earned several plane tickets but now I use UPromise Master Card to earn money for my grand children's education,

December 27 2013 at 6:24 PM Report abuse rate up rate down Reply

I used the American taxpayers credit card for years and I added 5 trillion dollars to the debt.

December 17 2013 at 5:10 PM Report abuse -2 rate up rate down Reply

How old is this writer?? 18, maybe??? And who does he think he is kidding?? LOL

Claiming that it's "too hard" to figure out a monthly written budget and stick with that is just immature and childish. And so is making his wife responsible for tracking his spending, while he frolics around buying on credit. (If he is receiving a huge amount of rewards points, he is also doing a huge amount of spending.)

Did anyone else notice that this writer completely ignored the concept of regularly saving money?? It's just "let's get out there and spend on a credit card". That's practically a sure-fire way to end up being up to your eyeballs in debt.

Credit card users are notorious for overspending. Swiping that plastic card is just not the same experience as having to fork over your hard-earned cash. Sooooooo easy to throw some more off-budget "want it, gotta have it" impulse purchases into your shopping cart every time you shop with a credit card.

Obviously, he's not a fan of Dave Ramsey, either. However, it's undeniable that Ramsey has helped many people get control of their excessive spending and get out of debt. His envelope budget cash system is easy to set up, and it WORKS. Anyone, who is in financial trouble needs to read Dave Ramsey's books.

I think this writer's reality check must have bounced. LOL Americans are in financial trouble BECAUSE they have spent money they didn't have by using credit cards ---- not because they budgeted and paid cash for their purchases.

December 16 2013 at 12:21 PM Report abuse +1 rate up rate down Reply

wow - you can't manage to bring home a simple receipt to manage a cash budeting system? Really? How do you reconcile your credit card statement. You need to verify every credit card transaction by comparing your original receipt to your statement or online account. I use Quicken to do this once a week. Every year I catch SEVERAL false transactions or errors. From servers who add to tips to double charges to entirely false charges. Just this week I caught a double charge from a vendor that swiped the card twice thinking it didn't go through the first time. Saved me over $450. If you don't compare receipts you'd never know!! Grow up and be more responsible with your money Dude!

December 16 2013 at 9:18 AM Report abuse +1 rate up rate down Reply
2 replies to David's comment

@ David: I completely agree with your comment. The answer to your question is that he isn't bothering to reconcile his credit card statement. He's just congratulating himself on his pile of rewards points.

December 16 2013 at 12:28 PM Report abuse rate up rate down Reply

Most the young people to not even keep a ledger for their checkbook either. they go on line to see what their balance is (and I have no idea what they do for any outstanding checks).

December 17 2013 at 5:40 PM Report abuse rate up rate down Reply

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December 16 2013 at 8:58 AM Report abuse +2 rate up rate down Reply